Question corner: If today is great, won't tomorrow be even better?
My parents are waiting until 2006 to sell because they think all the homes will be sold by then. What do you think?
I think your parents are making two big mistakes.
First, they're missing the fine print: "Past performance does not guarantee future results." They're gambling—literally—that the real estate market of today will be the real estate market of tomorrow. Today, homes sell quickly and for top dollar. Tomorrow? Who knows? But the roller coaster ride that local real estate has taken since 1999 strongly suggests that tomorrow will not be like today.
Real estate moves much faster than it used to. Market cycles, once measured in years, now last months. Here's proof. Since 1999, local home prices have gone up and down by at least 15 per cent four times. And each time the market has moved, it's made a difference of tens or even hundreds of thousands of dollars to sellers. Of the last four seller's markets, three have lasted just four to six months. The current seller's market has lasted over two years. It's an old-timer by local standards, long overdue for its retirement party and gold watch, yet your parents are betting it'll wheeze through another year.
Second mistake: your parents are trying to time a market that even the Ph.D. economists don't understand. If we do run out of homes to sell this year—not likely—that would be your parents' worst nightmare, not their fondest hope. Ultra-tight inventory would boost home prices so high that buyers would stop buying. Then homeowners like your parents who've been waiting for the perfect moment to sell would panic and flood the market.
Buyers don't have to buy. When the market stops making sense to them, they just go to the sidelines and wait until it does. Until then, they don't budge. They rent, or just stay put in the home they already own.
It's also important to remember that there will always be sellers who'll have to sell, and the lifestyle change your parents are making is a classic example of that. These sellers usually don't have much flexibility, since their move is often funded by the sale of their house.
Let's finish the unlikely scenario your parents are hoping for. Zero inventory drives prices sky high and drives more and more frustrated buyers out of the market. Sellers like your parents who've been waiting for the perfect moment to sell (or just procrastinating) suddenly decide to catch the last wave of the seller's market. But instead of catching that wave, they'll just be handing the seller's market its hat and pushing it out the door, because a sudden surge of inventory into a weakening market always drives home prices down. That turns a balanced market into a full-fledged buyer's market, but many sellers will miss that memo and hold out for yesterday's high prices. Unsold homes will pile up on the market, giving buyers even more leverage and driving down prices even more.
How can I be so sure? Because I've seen it. On the other hand, I've never seen us run out of homes to sell, although at times inventory has been very tight. That's typical of a hot market. But I have seen what happens when sellers suddenly realize that the good times might be over. Their reaction—trying to get out of Dodge en masse while the getting is still good—simply extinguishes what's left of the seller's market, turning it into a full-fledged buyer's market.
This slow-motion train wreck is how the real estate cycle ends (or begins, I suppose, depending on your point of view). That's why I say "if now is a good time to sell, sell now".
That's the only prediction your parents, or anyone, can take to the bank.